Section 46 — Capital expenditure of specified business. Successor to s.35AD of the 1961 Act.
Section 46 is in Chapter IV — Computation of Total Income, which runs from section 13 to section 95.
Sub-section (1) gives an assessee, at his option, a deduction of the whole of the capital expenditure incurred wholly and exclusively for the purposes of a specified business carried on by him, in the tax year in which the expenditure is incurred. Sub-section (2) deals with pre-commencement spending: where such expenditure is incurred before operations begin and is capitalised in the books as on the date of commencement, it is allowed in the year the business commences.
Sub-section (3) sets the entry conditions. The business must not be set up by splitting up or reconstructing an existing business, and must not be set up by the transfer of machinery or plant previously used for any purpose. Two categories carry extra conditions: a cross-country pipeline network under sub-section (11)(d)(iii) must be owned by an Indian company, a consortium of such companies, or an authority, board or corporation under a Central or State Act, be approved by the Petroleum and Natural Gas Regulatory Board and notified by the Central Government, make available at least the proportion of pipeline capacity specified by that Board's regulations on a common carrier basis to persons other than the assessee or an associated person, and satisfy any prescribed condition; and a new infrastructure facility under sub-section (11)(d)(xiv) must be owned by a company registered in India, a consortium, or an authority, board, corporation or other body under a Central or State Act, which has entered into an agreement with the Central Government, a State Government, a local authority or another statutory body for developing or operating and maintaining the facility.
Sub-sections (4) and (5) prevent doubling: no Chapter VIII-C deduction is available for the same specified business for that or any other year if the sub-section (1) deduction is claimed and allowed, and no deduction for the same expenditure is available under any other section in any year or under this section in another year. Sub-section (6) carries a Table fixing, for each nature of specified business, the date on or after which operations must have commenced. Sub-section (7) deems an assessee who builds a two-star-or-above hotel and later transfers its operation while retaining ownership to be carrying on the specified business in sub-section (11)(d)(iv). Sub-section (8) applies sections 122(6) and 140(8) and (13) to goods, services or assets held for the specified business.
Sub-section (9) is the clawback. An asset for which the deduction is claimed and allowed must be used only for the specified business for eight years beginning with the tax year of acquisition or construction; if it is used for another purpose in that period and the amount is not chargeable under section 26(2)(k), the total deduction allowed, reduced by the depreciation that would have been allowable under section 33 had no deduction been given, is deemed to be income under the head "Profits and gains of business or profession" of the year of that use. Sub-section (10) disapplies that clawback for a company that has become a sick industrial company under section 17(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 during the eight-year period.
Sub-section (11) defines the terms. "Associated person" covers a person participating directly, indirectly or through intermediaries in the management, control or capital of the assessee, holding shares carrying at least 26% of voting power, appointing more than half the board or one or more executive directors or executive members, or guaranteeing at least 10% of total borrowings. It also defines "cold chain facility", "infrastructure facility", and lists fourteen "specified businesses". Clause (e) says machinery or plant used outside India by another person is not "previously used" if it was never used in India before installation by the assessee, is imported into India, and no depreciation on it has been allowed or was allowable to any person before installation. Clause (f) deems the condition in sub-section (3)(b) complied with where previously used machinery or plant transferred to the specified business does not exceed 20% of the total value of machinery or plant used in it. Clause (g) excludes from capital expenditure any payment, or aggregate of payments, to a person in a day exceeding Rs. 10000 otherwise than through a specified banking or online mode, and any expenditure on acquiring land, goodwill or a financial instrument.
The section buys forward investment in infrastructure and other listed activities by allowing the whole capital cost in one year instead of over the life of the asset, which is a large timing benefit. Everything else in the section is the price of that benefit: entry conditions to stop an existing business being repackaged, a commencement Table to date each concession, an eight-year use condition with a clawback so the asset is not diverted once the deduction is banked, and a bar on claiming the same cost twice.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Amount of the deduction | The whole of the capital expenditure | Incurred wholly and exclusively for the purposes of the specified business, at the assessee's option, in the year incurred | Sub-section (1) |
| Period for which the asset must be used only for the specified business | Eight years | Beginning with the tax year in which the asset is acquired or constructed | Sub-section (9)(a) |
| Minimum beds for a hospital to be a specified business | At least 100 beds for patients | Building and operating a new hospital, anywhere in India | Sub-section (11)(d)(v) and sub-section (6), Table Sl. No. 3 |
| Voting power test for an associated person | At least 26% of the voting power | Shares held directly or indirectly in the capital of the assessee | Sub-section (11)(a)(ii) |
| Guarantee test for an associated person | At least 10% of the total borrowings | Borrowings of the assessee guaranteed by that person | Sub-section (11)(a)(iv) |
| De minimis for previously used machinery or plant | 20% of the total value of the machinery or plant used in the business | Where previously used machinery or plant transferred to the specified business does not exceed it, sub-section (3)(b) is deemed complied with | Sub-section (11)(f) |
| Cash payment excluded from capital expenditure | Exceeding Rs. 10000 | Payment or aggregate of payments made to a person in a day otherwise than through specified banking or online mode | Sub-section (11)(g)(i) |
| Commencement date, cross-country natural gas pipeline network | On or after 1st April, 2007 | Laying and operating a cross-country natural gas pipeline network for distribution, including integral storage facilities | Sub-section (6), Table Sl. No. 1 |
| Commencement date, hotel, hospital and slum redevelopment housing | On or after 1st April, 2010 | A new hotel of two star or above category; a new hospital with at least 100 beds; a housing project under a notified slum redevelopment or rehabilitation scheme | Sub-section (6), Table Sl. Nos. 2, 3 and 4 |
| Commencement date, affordable housing and fertilizer | On or after 1st April, 2011 | A housing project under a notified affordable housing scheme; a new plant or newly installed capacity in an existing plant for production of fertilizer | Sub-section (6), Table Sl. Nos. 5 and 6 |
| Commencement date, container depot, bee-keeping and sugar warehousing | On or after 1st April, 2012 | An inland container depot or container freight station notified or approved under the Customs Act, 1962; bee-keeping and production of honey and beeswax; a warehousing facility for storage of sugar | Sub-section (6), Table Sl. Nos. 7, 8 and 9 |
| Commencement date, slurry pipeline and semi-conductor fabrication | On or after 1st April, 2014 | A slurry pipeline for transportation of iron ore; a notified semi-conductor wafer fabrication manufacturing unit | Sub-section (6), Table Sl. Nos. 10 and 11 |
| Commencement date, infrastructure facility | On or after 1st April, 2017 | Developing, or operating and maintaining, or developing, operating and maintaining, any infrastructure facility | Sub-section (6), Table Sl. No. 12 |
| Commencement date, residual | On or after 1st April, 2009 | In all other cases not covered by Table Sl. Nos. 1 to 12 | Sub-section (6), Table Sl. No. 13 |
The deduction is optional and all-or-nothing for the year: take it and Chapter VIII-C is closed for that specified business for every year, and the same expenditure cannot be claimed under any other section or in any other year. Two separate lists have to be satisfied — the activity must be a specified business in sub-section (11)(d), and operations must have commenced on or after the date the sub-section (6) Table gives for that activity, with Sl. No. 13 catching everything else at 1st April, 2009. The eight-year use condition survives the year of claim: a diversion in year six brings back the deduction net of notional section 33 depreciation as business income of that year, and the only relief is the sick industrial company carve-out in sub-section (10). Watch clause (11)(g): land, goodwill and financial instruments are excluded from capital expenditure altogether, and a day's payments to one person above Rs. 10000 outside specified banking or online mode are excluded too — the sum simply is not capital expenditure for this section, not merely disallowed.
A company sets up and operates a cold chain facility, commencing operations in June 2026 — within Table Sl. No. 13, which requires commencement on or after 1st April, 2009. It incurs Rs. 40 crore of capital expenditure, of which Rs. 3 crore is on land. Land is excluded by sub-section (11)(g)(ii), so Rs. 37 crore is deductible in that year under sub-section (1), and no Chapter VIII-C deduction can be claimed for that business in any year. If in year five it converts a warehouse costing Rs. 5 crore to ordinary commercial storage outside the specified business, the Rs. 5 crore deduction less the depreciation that would have been allowable under section 33 becomes business income of that year under sub-section (9)(b).
You meet section 46 in the profits and gains computation in the return, where the option is exercised, and in scrutiny where the Assessing Officer tests the sub-section (3) conditions or the commencement date in the sub-section (6) Table. The clawback under sub-section (9)(b) reaches a taxpayer as an addition in an assessment order years after the deduction was allowed.
An assessee, at his option, shall be allowed a deduction of the whole of the capital expenditure incurred, wholly and exclusively, for the purposes of any specified business carried on by him during the tax year in which such expenditure is incurred.
shall be used only for the specified business for a period of eight years beginning with the tax year in which such asset is acquired or constructed
for which the payment or aggregate of payments made to a person in a day, is not through specified banking or online mode, exceeds Rs. 10000
incurred on the acquisition of any land or goodwill or financial instrument
See the full 1961 to 2025 concordance.
All of them are in the Rules 2026 index.
See the notifications index.
